At YC startups especially, it is quite common. Founders often take the minimum amount of money necessary to survive. But they will often pay market (especially after Series A) or near-market to their hires, plus equity.
Most intelligently run startup should do the same thing. You should be hiring people who will add more value to the business. Often you should be hiring people who are smarter than you.
It's the same principle which means if Steve Jobs came to me and said he wanted to be involved in my startup, I'd happily hand over 60% of my equity to him. The 40% I'd be left with, whilst proportionally lower than what I had previously, would be worth far more than what it was before.
At the moment I earn my rent + expenses from my business. As and when we close our next round of funding, I'll likely formalise this arrangement (at the moment we're boxing clever with the tax man by paying me in various ways), but I'll definitely pay market + equity for early hires.
We recently got told by our accounting/legal people that founder salaries had to be at least 35k/yr once they started (which we did so we could get payroll/benefits in place for new hires; has to run for 6-8 weeks first, unless you go though a PEO like TriNet, which we didn't want to do) -- otherwise we were going for $2k/mo.
So now I make $3k/mo. It's interesting trying to live within that amount (I have savings, but consciously would like to not dip into them more than I have to) in the Bay Area.
It is a great opportunity to do IRA to Roth conversions and such this year. The crazy thing is I would technically qualify for rent controlled apartments in SF, although my income might be too low to rent them.
I think $50-60k is a much more reasonable founder salary, once we finish Series A. I suspect most Bay Area startups get to that point, or even up to $70-100k, for founders, once they raise >$3mm or so.
